Sandwich Generation: Time to Downsize?

Instead of waiting to sell your house at retirement, it just might pay to make your move now

Jeff Brown writes a biweekly blog about the Sandwich Generation and the financial issues its members face as they try to help their parents and their adult children. The blog appears on Next Avenue and on the website of the public television show, Nightly Business Report. A highly respected financial journalist, Brown brings personal expertise to the subject because he is himself part of the Sandwich Generation.

Someday soon — college admissions officers willing — the kids will be out of the house and the parents will be left to ask: “What now?”

I know all about this. I’m writing from a hotel room on a combination college tour and house hunt. More specifically, I’m indulging a long-held fantasy to scope out acreage in the scenic “Grand Canyon” region of north-central Pennsylvania, where land is cheap, taxes are low and my weekends would no longer be marred by the roar of neighbors’ mowers, blowers and chippers.

With a 17-year-old son headed to college in a year, my wife, Leslie, and I, ages 61 and 55 respectively, don’t have to stay in the suburban Philadelphia house where we’ve lived for nearly two decades.

So we’re exploring the notion of downsizing our lives.

I’m a freelance writer who can work from anywhere by phone and Internet. Leslie, a newspaper reporter, could do the same sometime soon.

In a couple of weeks, we’ll be headed to Florida to scout out a Vero Beach tennis community that might suit us if rural Pennsylvania doesn’t, or if we opt for easier travel to see our parents in the New York City suburbs and in North Carolina, who are getting on.

A Difference of Opinion About Moving

Like many couples, we’re not exactly of one mind about moving. I’m itching for change and Leslie still gets plenty of kicks at her current job. But the lure of tennis every day might convince her, even if a Florida move means a smaller place without much of a garden.

We haven’t decided what to do, but felt we should seriously inspect our options.

Why the hurry to downsize? After all, my wife and I are years from real, 100 percent retirement. For most people, downsizing comes later, when the winters get too harsh, the stairs too steep, the property taxes and home maintenance costs too high and the chores too challenging.

That’s exactly why we’re starting our research now.

Explore Downsizing Your Home Earlier

To get the most bang for the buck, a downsize should occur earlier rather than later, giving you the benefit of time to snowball. Why continue to pay for a three- or four-bedroom home in a high-tax community years after the kids are grown and you no longer need top-notch public schools or all that space?

Suppose you could pocket $50,000, $100,000 or maybe even $200,000 by selling the big place and buying a cheaper one. If you invest that nest egg by downsizing in your 50s instead of in your 60s (or even in your 60s instead of in your 70s), the fund might grow by 50 percent while you’re enjoying your new home. It could even double if you diversify well among stock-and-bond mutual funds and the markets are kind enough to deliver their historical average annual returns.

On top of that, you’d benefit from yearly savings on expenses such as property taxes and home maintenance. Invested carefully, this found money could compound, too.

Those potentially sizeable savings would be a nice cushion if you live a good, long life. Or the money could let you retire a bit earlier. Alternatively, you could use the cash to help support your aging parents or offer your kids a hand with education costs or a first home.

Okay, the early downsize isn’t for everyone.

There’s a lot to be said for the growing trend of “retiring in place” — staying in your current home where you have wonderful memories and the location may be ideal, even if the cost of living is a bit steep.

But if downsizing to a less expensive area is an option, it could pay to think about making the shift sooner rather than later.

Real estate is very cheap right now, so it’s a good time to buy that next, smaller place. Interest rates are at historic lows, if you need to take out a mortgage. And you may have a decent chunk of home equity you could convert to cash to help pay for the smaller residence.

Another option to consider: Use your current home as collateral on a mortgage to buy the next property, then rent out one of the two homes until housing prices rise and your original home can be sold for more than it would fetch today. Rents are currently high relative to home prices, so you might earn a tidy income waiting for a better time to sell.

It’s a big topic and one I’ll come back to in the future. But for now, I’m driving out to look at six acres with a view.

Jeff Brown has nearly 20 years experience as a personal finance columnist for publications including The New York Times, The Nightly Business Report on PBS, The Philadelphia Inquirer and MSNBC.com. For the past 11 years, he has been a frequent contributor to [email protected], the business journal of the University of Pennsylvania's Wharton School. With a son soon to start college and a mother in retirement, Jeff lives the sandwich generation experience daily. He and his son and wife live in Yardley, Penn. Follow Jeff on Twitter: @JefBrownFinance.@jefbrownfinance